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An Arizona company that sells services designed to prevent identity theft has agreed to pay $12m to settle charges it oversold their effectiveness and didn't adequately protect sensitive customer data.

LifeLock, which since 2006 has run TV and print ads displaying the social security number of its CEO, agreed to stop misrepresenting its service as a foolproof way to prevent identity theft, according to the US Federal Trade Commission. The consumer watchdog agency and attorneys general from 35 states claimed the company's $10-per-month service failed to stop the most prevalent forms of the crimes.

A complaint filed in federal court in Arizona alleged that alerts LifeLock placed on customer credit files protected against only so-called new account fraud, in which scammers open new credit accounts using the name and social security number of the victim. New account fraud accounted for just 17 per cent of identity theft incidents, according to an FTC survey released in 2007.

LifeLock was unable to prevent medical identity theft and employment identity theft, in which crooks use personal information to get medical care or apply for jobs, the FTC said. It was also ineffective at protecting against abuse of existing accounts.

The agreement also took aim at claims LifeLock made that it routinely encrypted customers' social security and credit card numbers and granted its employees access to such data strictly on a need-to-know basis. FTC attorneys charged that such claims were false. The settlement requires LifeLock to establish a comprehensive data security program and obtain independent third-party assessments for 20 years.

LifeLock has come under criticism for ads that claimed it could protect customers against identity theft. Although CEO Todd Davis said he was so confident in the service he was willing to publicly post his social security number, he has regularly been the victim of such crimes. Competitor Experian has also sued LifeLock for fraud.

Of the settlement amount, $11m will be paid to the FTC and the remaining $1m will go to the 35 states that were part of the action. The FTC has more here. ®